Re-denomination of Cedi: Recipe for simple TRANSACTION

A GNA FEATURE BY B.A ADOM

Accra, March 11, GNA- Many financial and business people saw the Bank of Ghana's decision on the re-denomination of the cedi as a good move. Shortly after, the uniformed majority thought it shocking since they felt the re-denomination was equivalent to devaluation.

However, with the series of lectures and seminars being organized by the re-denomination steering committee, it has been proven that the re-denomination of the Cedi is indeed absolutely different from devaluation.

Re-denomination implies a process of scaling every price of goods and services to a common denominator (=A210,000 3DGH A21=3D100GP) with prices of goods and services remaining the same value.

The issue of this re-denomination has become necessary due to numerous difficulties imposed by the stable macro economic environment and the strong economic fundamentals such as high and consistent real GDP growth rates, downward inflationary trend and stable interest rate that the economy is enjoying at the moment, say some economists and Bankers.

Several factors have been cited as the difficulties imposed by the current regime, which include the following: High transaction costs general inconvenience and high risks of carrying loads of currency, difficulties of maintaining bookkeeping and statistical records, problems with accounting and data processing software as well as the strain on the payments system, for instance, during ATM withdrawals when clients intend withdrawing something small only to realize that they have emptied their entire account

By a simple description, the four zeros which are to be knocked off which forms the basis of the re-denomination is to reduce the incidence of high numerical value of items due to hyper inflation coupled with its effect on dead weight loss in terms of buying and selling as well as banking. The numerical value of notes and coins leads to so much time being spent in depositing and withdrawing monies from the Banks. Not only this, but even when working with spreadsheets, when between six and twelve digits are entered in a cell, they are completely wiped off the next day it is opened, implying that the cells cannot contain amounts involving millions, billions and trillions.

Though some economists and Bankers have not denied that, if it was undertaken in an unstable macro economic environment with a weak economic fundamentals, it has a potential of causing inflation and the zeros will continue to rise as in Argentina and Brazil which have carried out re-denomination exercises four and two times respectively. Since it was not introduced at the right time, it did not thrive initially, but they contend that with this stable macro economic environment it will be beneficial and sustainable in Ghana, especially with real GDP growth rates rising from 3.7% to 6.2% between 2000 and 2006 coupled with a fallen inflationary trend from 11.4% in July 2006 to 10.5% as at December 2006, slightly above the single digit targeted for 2006.

The Ghana Cedi to be introduced in July 2007 is to be used simultaneously with the old notes and coins for a period of six months before the old notes and coins phases out.

As to whether the re-denomination could cause inflation, some researchers disagree because they claimed that it is the relative scarcity of goods and services that determines their prices. Hence, it is the forces of demand and supply that determines the price of each commodity sold and bought or services rendered and this is expected to ensure stable prices both at the inter-bank level and the foreign exchange market.

For instance, if the Cedi-Dollar and Cedi-Pound exchange rates are =A29200 and A21,7400 respectively when they are denominated their equivalent values will be GH=A20.9200 and GH=A21,7400 respectively and the values remains the same except for the fact that higher denominations are being substituted for by lower denominations. This ensures simplification of monetary transactions and convenience in carrying money about.